Author Topic: Primary Residence Duplexes - Can I Avoid Some Taxes  (Read 489 times)

FIBy30

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Primary Residence Duplexes - Can I Avoid Some Taxes
« on: August 19, 2017, 06:50:36 PM »
Hello,

My wife and I have purchased 3 properties over the last four years (2 duplexes, 1 4 plexes).  We have owner occupied all of them, but we may have made an error in not staying in one of them for 2 years (wouldn't have been possible to stay in each of them for 2 years with our timeline).  If I understand correctly, if we can qualify for the 2 years, we could avoid taxes for 1/2 of duplex or 1/4 of 4 plexes on sale.  We currently rent our primary residence and do not have a desire to move back to any of these properties to build the clock back up, just want to sell. What I would like to know is if the 2 years is a hard rule. I will show you in the properties below we got very close. Here goes:

Property A (Duplex)
Closed on 2/28/13
Moved in 5/1/13
Moved out 8/15/14

Property B (Duplex)
Closed on 6/6/14
Moved in 8/15/14
Moved out 3/1/16

Property C (4 Plex)
Closed on 10/23
Moved in 3/1/16
Moved 5/29/17

Here are the addresses for each tax year that were used.
2013: Property A
2014:Property B
2015: Property C
2016: Property C

Hopefully something can be done a previous tax consultant I talked to seemed to think we could do it but I haven't revisited it until now because we are selling.

Thanks all in advance!!

MMbergmann

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Re: Primary Residence Duplexes - Can I Avoid Some Taxes
« Reply #1 on: August 19, 2017, 07:18:22 PM »
I simply want to know your income ranges so I know whether this would even save you any taxes. If you're in the range where capital gains would be 0 or 10 percent then I would say don't bother.

Other question I have is why are you planning on selling them? Are you changing your AA? Or you don't want to rent out units anymore?

FIBy30

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Re: Primary Residence Duplexes - Can I Avoid Some Taxes
« Reply #2 on: August 19, 2017, 07:25:34 PM »
My wife and I will probably do 250k this year between investments and W-2 income.

I'm not sure what AA means (not on the forum enough :) but we plan to sell to just invest in index funds we are happy with this amount to live on and don't want to manage these anymore.  They've appreciated enough that we are happy with the end result even if we do pay all the taxes.

MMbergmann

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Re: Primary Residence Duplexes - Can I Avoid Some Taxes
« Reply #3 on: August 19, 2017, 07:52:15 PM »
AA is asset allocation. So yes it does sound like you are changing that. An asset allocation would tell you what to do with the next x amount invested. Say you have 5k to invest, you may put 1k in bonds and the rest in VTSAX.

Typically this would be considered a passive activity, so none of your tax losses would be deductible, but an "advantage" of selling is that these losses are now deductible, at least for the rental house you dispose of.

Finallyunderstand

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Re: Primary Residence Duplexes - Can I Avoid Some Taxes
« Reply #4 on: August 20, 2017, 06:36:51 AM »
Yes, two years is a hard rule although they don't really have a way of tracking it.  Obviously you can't claim you live in all 3 for 2 years.  For property B it looks like the closest to two years.  If you're set on at least optimizing some taxes you could move back in for about 5 months.

As a poster above mentioned, ifyour tax liability is low then it may not be worth the hassle.

Drifterrider

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Re: Primary Residence Duplexes - Can I Avoid Some Taxes
« Reply #5 on: August 21, 2017, 11:04:14 AM »
Unless they have changed the language of the legislation the two of five rule applies for the full amount (250/500K).

If you have less than two years, you may pro rate the exemption.

Again, it has been years since I worked in public accounting so you need to read the rule.  You can find it at www.irs.gov